For Mortgage Lenders, Refusal to Follow the New Jersey Fair Foreclosure Act Began on Day 1

By Adam Deutsch, Associate Attorney, Denbeaux & Denbeaux, Attorneys at Law, Westwood, NJ

Nearly seventeen years after being signed into law by former New Jersey Governor Christie Whitman, the Fair Foreclosure Act has become the focal point of the pending state Supreme Court case US Bank National Association Trustee v. Guillaume. As the title suggests, the 1995 law requires lending institutions to follow particular guidelines before and during foreclosure litigation. Having heard oral argument in late November 2011, it is expected that within the coming weeks New Jersey’s Supreme Court will issue a ruling on a key provision of the Fair Foreclosure Act that requires lenders to send a Notice of Intention to Foreclose to homeowners in default on their mortgage obligation at least 30 days in advance of filing the foreclosure complaint. A New Jersey Law Journal article by bank advocate Myron Weinstein written shortly after passage of the 1995 Act makes clear that from day one mortgage lenders decided to willfully ignore the requirements of the Fair Foreclosure Act.

For the Supreme Court, grappling with the language of the Fair Foreclosure Act will likely be the easy part of their decision. The Act clearly and unambiguously provides definitions of what information must be provided in the notice. Homeowners and their advocates have argued that a failure for the lender to issue a notice that complies with the Act must result in the dismissal of a foreclosure complaint and possibly the vacating of foreclosure judgments. Lenders have argued that the mortgage lending business progressed faster than the law and therefore the interpretation of the 1995 Fair Foreclosure Act should be read more broadly to reflect changes in the industry. A reflection on history requires a close look at the pivotal year of 1995. This was not only the year the Fair Foreclosure Act as passed, but also the moment when the mortgage industry made significant infrastructure changes enabling mortgages to be bought, sold, and securitized nationally.

The marquee event that changed the mortgage industry was the creation of MERS, the Mortgage Electronic Registration System. MERS was founded in 1995 as an electronic database intended to facilitate sales of mortgages and track the identity of the mortgage owner. It is estimated that by 2007, two-thirds of all mortgages in the United States were registered in the MERS database. It is widely acknowledged that MERS helped precipitate the current foreclosure crises by making it easier to buy and sell mortgage contracts electronically. Institutional buyers and sellers traded mortgages on such heavy volume that the value and reliability of the products bought and sold often remained unknown. The end result has been a confusing and incomplete trail of paper that often leaves lenders unable to prove that they are the party entitled to a foreclosure judgment.

Homeowners and their advocates are often amazed at what appears to be a willful refusal of lenders and their counsel to have followed the simple requirements of the Fair Foreclosure Act notice of intention to foreclose provision; which requires little more than disclosing the actual owner of the note who has the right to foreclose on the homeowner’s real property. Quite often a Notice of Intention to Foreclose states the identity of the loan servicer instead of the owner/lender. This error may seem minor, but it is critical because homeowners often do not know who the lender is that owns their loan until they receive a foreclosure complaint. If you are a homeowner in default who has never been involved in litigation and does not understand the critical importance of answer a litigation complaint, you may find yourself ignoring a legal document issued to you by a company you have never before heard of. This in part is the purpose of the Notice of Intent to Foreclose, to make the debtor aware of who owns their loan and who is seeking to foreclose.

The widespread attitude among lenders and their counsel to ignore the Fair Foreclosure Act can be traced back to an article published in the New Jersey Law Journal on December 4, 1995 titled “New Foreclosure Act: More Complexity, Uncertainty.” The article is written by Myron C. Weinstein, the former chief of the state judiciary’s Office of Foreclosure, and a
longtime advocate and advisor to foreclosure plaintiff institutions and law firms. The article makes clear that from the inception of the Fair Foreclosure Act, there was a pervasive intent among foreclosure plaintiffs to resist following the several requirements of the Act, including the Notice of Intention to Foreclose provision.

Mr. Weinstein’s article expresses a belief that the notice of intention to foreclose provision will be considered a procedural requirement rather than a substantive one, therefore implying that a pervasive failure to comply would not result in a coffin nail to foreclosure lawsuits. This article reflects an early adopted outlook by lenders that has now culminated in a self fulfilling prophecy. “Lenders, faced with the prospect of the act, will either be less flexible in granting discretionary workouts to debtors…and institute foreclosure more quickly to precipitate an earlier cure or an earlier exhaustion of the debtors’ statutory rights.” From day one, the industry decided that it was the victim of a law which should be ignored rather than followed.

Nobody knows with certainty how the New Jersey Supreme Court will decide the Guillaume case. Whether or not the law is upheld in a manner that affords homeowners the greatest rights interpreted under the Fair Foreclosure Act, the following is clear: Since 1995 there has been a continuing effort among mortgage lenders instituting foreclosure litigation to ignore the plain language of the Fair Foreclosure Act. For much of the last sixteen years these efforts went unchecked and it is unknown how many thousands of willful violations of the Fair Foreclosure Act occurred. It took an epidemic to truly understand and appreciate the magnitude and importance of the law in question.